Cost Allocation Guidelines for Consortia Comprising Eligible and Ineligible Entities

The following cost allocation guidelines will be used by SLD to review, analyze and process applications. Schools and libraries as well as service providers should consider these guidelines when:

• schools and libraries and service providers negotiate their contracts for contracted services or agreements for tariffed or month-to-month services;
• schools and libraries fill in and submit their 471 applications;
• service providers prepare their bills for services to eligible schools and libraries;
• service providers submit their invoices to SLD for payment.

Allocation of discounts to eligible entities among a consortium comprising both eligible and ineligible entities

According to the form 471 instructions, when eligible and ineligible entities share services, the service provider may only receive support for that portion of the service that eligible entities are receiving. To help auditors confirm that this rule is being observed, the applicant must keep and retain careful records.

A. Service Where Usage is Tracked - Service providers and customers must itemize in their contracts/agreements the services for which the customers plan to apply for discounts.

Where usage of eligible services is tracked by the service provider, the service provider should itemize the bill so that costs attributable to eligible schools and libraries are separately identified and the discount for each eligible school or library is specified on the bill. The bill submitted by the service provider must identify the pre-discount price of eligible services.

B. Service or Connections Where Usage Is Not Tracked - Eligible entities can receive discounts for eligible services that are shared with ineligible entities where it may not be feasible to track usage in order to allocate costs among these entities. In those cases, the consortium members cooperating to purchase the common service or connections have to agree in advance among themselves on how to allocate costs, based on their estimated relative use of the resulting service.

The allocation methodology must be based on a usage measure. Examples of such measures are:

• number of connections (trunks or lines or wireless connections) operated by each consortium member;
• number of connections (trunks or lines or wireless connections) operated by each consortium member and times of operation of the trunks or lines or wireless connections (a proxy for minutes of use)

The allocation methodology should be set forth in the contract/agreement for services executed with the service provider. If there is no contract for services (as may be the case for tariffed or month-to-month services), the customer should provide the service provider with a copy of its allocation methodology. The allocation methodology for allocating costs may be established permanently, or it may be reviewed periodically. This methodology must be documented as part of the record keeping responsibilities of the Form 471 applicant. The entity actually paying bills to the service provider (the Form 471 applicant) must maintain records of how the costs of services shared with ineligible entities are allocated. In those situations where the service provider remits one bill to the consortium for all the services rendered to all members of the consortium (which may include ineligible entities), then the allocation methodology must be provided by the lead consortium member to the service provider in advance, so that the service provider may compute the discounted portion of the bill.

Examples of Allocation Methodologies

Number of Lines - A consortium comprising both eligible and ineligible entities may choose to allocate the pre-discount price among each member according to the number of lines used by each member. For example, if there are five entities comprising the consortium, and the service provider issues one bill to the lead consortium member, and there are five lines used by each consortium member, each member would be allocated 1/5 or 20% of the bill. The pre-discount price for the consortium would be the sum of the pre-discount price allocated to each eligible school or library. Thus, if only four of the five entities are eligible for discounts, then the discounts would be applied to 80% of the price billed by the service provider.

Number of Lines and Hours of Operation - The consortium may also decide to allocate the pre-discount price among each member according to the number of lines and the period of time each line is used by each member. In the above example, assume further that there are five entities comprising a consortium of eligible and ineligible entities, and there are five lines used by each consortium member.

Assume further that one member of the consortium operates 24 hours per day and the other entities use their lines 10 hours per day. The consortium could agree to weight the allocation methodology according to both the number of lines and the hours of use by each school or library as follows:

Each of the first four consortium members would be allocated 50/320 or 15.625% of the bill from the service provider. The fifth consortium member would be allocated 120/320 or 37.5% of the bill from the service provider.